Fed’s Monetary Malfeasance Creating Catastrophic Bubble

Apr 25, 2011, 3:43 pm EDT

The silent investment story of the year is the collapse of the U.S. dollar against the Swiss franc, Canadian dollar and Swedish krona. The dollar’s decline has been breathtaking, and the fault, as always, lies with the Fed.

Chairman Ben Bernanke assures gullible citizens that he is not “printing the money.” But take a gander at my chart — Adjusted Monetary Base (high-powered money) and Excess Reserves. Parabolic curve comes quickly to mind.

For the Fed chairman to B.S. the citizenry with his “we’re not printing the money” is cause for Mr. Bernanke to look for another line of work. Let me be clear: The Fed’s monetary malfeasance has caused yet another catastrophic bubble. Read 

South Africa the Next Emerging Market Powerhouse?

Apr 23, 2011, 2:00 pm EDT

Part of the reason why China is seeing inflation is massive economic growth enjoyed by the nation. The growth in China, as well as the growth of the BRIC economies, was the subject of a recent summit held in Sanya, China’s southernmost city in the Hainan province.

The BRIC nations — Brazil, Russia, India, China — have all become important and powerful economic forces. Together, they’ve soared past the original predictions of Goldman Sachs executive Jim O’Neill, the man who coined the acronym BRIC, regarding what influence these countries were going to have.

Interestingly, the BRIC summit was actually a BRICS summit, as it included South Africa. The inclusion of another country here in the same breath as the original BRIC nations is significant, because it’s transformed the group into a truly global entity. South Africa is largely seen as a gateway for BRIC trade and investments into the resource-rich nations of Africa. Read 

Politics May Push Feds to Bail on GM Stake

Apr 21, 2011, 12:57 pm EDT

The Treasury Department reportedly is gearing up to dump “a significant share” of its General Motors (NYSE:GM) stock as early as this summer. 

The immediate impact is that taxpayers will lose a hefty share of the more than $50 billion the Obama administration poured into the company two years ago to keep it afloat. Longer term, a Chinese state-owned automaker could emerge winning a bigger stake in a premier American brand.

Published reports earlier this week said the Treasury Department has yet to contact GM about a sale date, but such a sale could happen this summer of early fall. Read 

Why a Credit Downgrade Is Good For America

Apr 19, 2011, 1:40 pm EDT

On Monday, Standard & Poor’s downgraded the U.S.’s credit outlook from stable to negative  — while maintaining the U.S.’s AAA rating.  This is great news for America and the rest of the world.

By putting a bit of pressure on American policymakers, S&P is reminding us that any country’s credit can and should be analyzed objectively.  S&P’s announcement suggests that it should have no problem downgrading countries with problems. The U.S. federal budget deficit is expected to be about 11% of GDP and our national debt is 100% of GDP. Countries with those kinds of numbers are going to get negative views from the ratings agencies.

Ratings agencies have taken a beating when it comes to credibility after pitching in to nearly destroying the global economy during the years preceeding the financial crisis.  After all, these agencies competed for billions in fees from investment banks seeking their AAA-imprimatur on bundles of toxic mortgage backed securities.  Now those ratings agencies are trying to get the public to forget about that and believe them again. Read 

Defense Stocks Teeter on Budget Ax’s Edge

Apr 18, 2011, 12:16 pm EDT

Before Monday’s broad market selloff, shares of major U.S. defense contractors had shown some bounce after taking a hit on the prospects of staggering cuts in defense spending.

Investors initially responded to President Obama’s threat last week to carve $400 billion from the defense budget over the next 12 years by selling off big defense names like Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), Orbital Sciences (NYSE:ORB), Raytheon (NYSE:RTN) and General Dynamics (NYSE:GD)

But by Friday, stocks were bouncing back, as investors perhaps remembered that gridlock in Washington is a far more likely outcome 18 months before a presidential election.   Read 

How to Play The Gap Between Chinese and U.S. Interest Rate Policy

Apr 18, 2011, 11:58 am EDT

The U.S. and China are the world’s two largest economies. So when they pursue radically different policies towards setting interest rates, investors should expect threats and opportunities.

At the core of the different interest rate policies is a fundamentally different concept of inflation and how to control it.  The U.S. ignores inflation that pains consumers – such as rising food and energy prices – and fears most deeply the inflation that cuts into corporate profits via rising wages.  By contrast, Chinese leaders fear consumer inflation because they believe that if China’s citizens can’t afford the basics of life, they will protest in the streets.

With wages dropping in the U.S., the Fed is determined to keep interest rates near zero. By contrast, in China, the government is raising interest rates and bank reserve requirements — four times in the last year or so — to try to cut off the flow of debt that drives up prices. How can investors profit from these different policies? The best way for an American might be to open a savings account at Bank of China. Read 

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